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Price uncertainty, saving, and welfare

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  • Nocetti, Diego
  • Smith, William T.

Abstract

We analyze how commodity price uncertainty affects saving behavior and welfare in a dynamic model with multiple commodities, portfolio hedging, and a preference structure that disentangles ordinal preferences, attitudes towards risk, and attitudes towards intertemporal substitution. We show that the effect of price uncertainty on savings boils down to knowing (1) hf degree of resistance to intertemporal substitution and (2) the effect that uncertainty has on the certainty-equivalent real interest rate. We also show that, if the certainty-equivalent real interest rate is lower with uncertainty, consumers' welfare is also lower.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 7 (July)
Pages: 1139-1149

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:7:p:1139-1149

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Price uncertainty Kreps-Porteus preferences Saving Welfare;

References

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Cited by:
  1. repec:hal:wpaper:halshs-00635558 is not listed on IDEAS
  2. Christophe Gouel, 2013. "Food Price Volatility and Domestic Stabilization Policies in Developing Countries," NBER Working Papers 18934, National Bureau of Economic Research, Inc.
  3. Jouini, Elyès & Napp, Clotilde & Nocetti, Diego, 2013. "On multivariate prudence," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1255-1267.

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